POLITICAL MEMO; Rubinomics Recalculated

By JACKIE CALMES

Published: November 24, 2008

CORRECTION APPENDED

It is testament to former Treasury Secretary Robert E. Rubin's star power among many Democrats that as President-elect Barack Obama fills out his economic team, a virtual Rubin constellation is taking shape.

The president-elect's choices for his top economic advisers -- Timothy F. Geithner as Treasury secretary, Lawrence H. Summers as senior White House economics adviser and Peter R. Orszag as budget director -- are past prot?s of Mr. Rubin, who held two of those jobs under President Bill Clinton. Even the headhunters for Mr. Obama have Rubin ties: Michael Froman, Mr. Rubin's chief of staff in the Treasury Department who followed him to Citigroup, and James P. Rubin, Mr. Rubin's son.

All three advisers -- whom Mr. Obama will officially name on Monday and Tuesday -- have been followers of the economic formula that came to be called Rubinomics: balanced budgets, free trade and financial deregulation, a combination that was credited with fueling the prosperity of the 1990s.

But times have changed since then. On Wall Street, Mr. Rubin is facing questions about his role as director of Citigroup given the bank's current woes. And in Washington, he and his acolytes are calling for a new formulation to address the global economic crisis that Mr. Obama will inherit -- and rejecting or setting aside, for now, some of their old orthodoxies.

Instead of deregulation, Mr. Obama has sworn to usher in a period of re-regulation, to avoid the freewheeling risks that Citigroup and the rest of the financial industry undertook after Mr. Rubin, with Mr. Summers, helped tear down the regulatory walls between banks, brokerages and insurance companies, and freed them to trade in unregulated and little-understood derivatives worth trillions of dollars. Mr. Geithner spent his first years as president of the Federal Reserve Bank of New York seeking ways to at least monitor those markets better.

Instead of balancing budgets, the Obama team will be going deeper into debt for at least two years by spending hundreds of billions of dollars more to stimulate the economy, without concern for deficits, for aid to the jobless, states and cities; tax cuts for workers; and job-creating construction of roads, schools and other public works. Nor, given the downturn, is Mr. Obama expected to try to quickly bring in more revenue by repealing the Bush tax cuts for those making more than $250,000.

Mr. Summers, who may well end up being Mr. Obama's closest economic adviser, has been especially public in calling for a big stimulus package. Many saw his touch in Mr. Obama's call this weekend for the stimulus plan to create or save 2.5 million jobs.

''Everyone recognizes that we're looking at deficits of considerable magnitude,'' said Jared Bernstein, an economist at the liberal Economic Policy Institute. ''Whether it's Bob Rubin, Larry Summers or the most conservative economist, that is a widely shared recognition.''

Liberals like Mr. Bernstein had long had an aversion to the kind of centrist economic policies of the Clinton years, which they felt were too concerned with deficit reduction and not focused enough on investment programs for labor and the middle class.

But Mr. Bernstein's past differences with Mr. Rubin have so softened that the two men recently wrote a column together about their new common ground on spending, regulation and trade protections for workers.

As for Mr. Summers, he has ''truly evolved,'' Mr. Bernstein said, based on his reading of Mr. Summers's columns in the Financial Times this year. Both men have been advisers to Mr. Obama, and at a recent meeting, Mr. Bernstein recalled: ''I told him, 'Boy, Larry, your views on trade, on income inequality, on stimulus spending, they're approaching ours at E.P.I.' And he sort of huffed and puffed, and said, 'Oh well, changing circumstances.' ''

Yet Rubin critics remain, mostly in Mr. Obama's own Democratic Party among liberals and union members who favor even more domestic spending and more protectionist trade policies.

''What worries me is there is not one person in the senior group who is the outsider to this club,'' said Robert Kuttner, a colleague of Mr. Bernstein's at the liberal Economic Policy Institute who has written a book, ''Obama's Challenge,'' about approaches to the economic crisis. ''Where is the diversity of opinion in this economic team?'' Mr. Kuttner asked.

Yet even Mr. Kuttner has warmed to some he calls Rubinistas. He praises Mr. Geithner for not hailing from a Wall Street investment bank and for being ''among the toughest on the need to re-regulate'' the financial industry from his perch at the New York Federal Reserve.

Mr. Kuttner calls Mr. Summers brilliant and notes that he has been out front in proposing big stimulus spending. But he disapprovingly noted that in recent meetings of economists advising Congressional Democrats, Mr. Summers has argued against restricting banks' ability to issue dividends to stockholders as a condition of receiving federal bailout money.

By all accounts, the trait that ties the 70-year-old Mr. Rubin and the younger men is their braininess. All but Mr. Summers are seen as cautious about policy. And all but Mr. Summers share their mentor's low-key affability and conversational ease; many wonder just how Mr. Summers, whose brusque ways left a trail of enemies when he was president of Harvard, will perform as director of the National Economic Council in the White House when the job demands someone who can coordinate with others, listen to them and fairly represent their views to the president.

''There's no way he will be confined to the N.E.C.'s turf; he will be sticking his nose into everything,'' said Bruce Bartlett, a Treasury veteran of the Reagan administration and a Summers admirer. ''Personally, I think that's more good than bad.''

Mr. Rubin used to recall privately that when he led the National Economic Council, his White House office gave him easy access to the president as well as to Hillary Rodham Clinton, then the first lady -- and in turn, influence. Mr. Summers is sure to use his proximity to the Oval Office to the same end, past associates agree.

That could mean tensions between him and Mr. Geithner, 47, who was Mr. Summer's only rival for another stint as Treasury secretary under Mr. Obama. Yet people who know both men say they got along well at the Treasury Department in the 1990s. It was Mr. Summers, as Mr. Rubin's deputy secretary, who first mentored Mr. Geithner and later promoted him to be under secretary for international affairs.

Mr. Rubin, also an adviser to Mr. Obama, supported both men but privately favored giving Mr. Summers, who turns 54 this month, a second chance. Mr. Rubin has long been invested in promoting Mr. Summers, vouching for him against those who object to his personality. He endorsed Mr. Summers to be his successor as Treasury secretary.

As a member of the Harvard University board, Mr. Rubin next helped Mr. Summers become university president. When Mr. Summers became embroiled in controversies with faculty and some women's groups and African-Americans over his perceived insensitivity, Mr. Rubin lobbied on his behalf. He was unsuccessful, and Mr. Summers was forced to resign.

The Harvard controversies were a factor in Mr. Obama's consideration of Mr. Summers for Treasury secretary. Leaders of several women's groups said they warned Obama advisers that a 2005 furor over remarks that some interpreted as Mr. Summers questioning women's intelligence in math and science relative to men's, would be revived if he were nominated. The Treasury post requires Senate confirmation; the National Economic Council director does not.

Yet Kim Gandy, president of the National Organization for Women, said her group's research actually produced material that recommended him. ''One good thing about Larry Summers,'' she said, ''is that he has written and spoken fairly extensively on the issue of women's wage inequality and the impact that has on the country.''

Correction: November 25, 2008, Tuesday
Because of an editing error, a Political Memo article on Monday about President-elect Barack Obama's reliance on past protégés of Robert E. Rubin, a top economics official in the Clinton administration, misstated the middle initial of Mr. Rubin's son who is on Mr. Obama's economics transition team. He is James S. Rubin, not P.

Correction: December 6, 2008, Saturday
An article on Nov. 24 about the links between former Treasury Secretary Robert E. Rubin and top economic advisers to President-elect Barack Obama inaccurately quoted a remark by Kim Gandy, the president of the National Organization for Women, about one of the advisers, Lawrence H. Summers. Ms. Gandy, who was asked about misgivings among women's groups over Mr. Summers, said her group's research produced some material that recommended him. But in describing approvingly his work on the subject of wage discrepancies, she did not refer to ''women's wage inequality;'' she said after the article was published that she was referring to his analyses of the income gap between rich and poor, not between men and women.